South Africa – Nigeria: Towards Free Trade? Updated

This article attracted some attention from IPS news. I was interviewed, electronically, with a view to elaborating on some of the arguments. The IPS article covered a fairly wide terrain, and is available here. Some of my views were reflected in the piece, but as is the nature of these things much was left out. My original replies to the questions I was sent are reproduced at the end of the original article below.

Original article

Much of the discussions at the World Economic Forum’s annual Africa gathering in Cape Town this year focused on infrastructure development and regional economic integration. Both are critical agendas for the sub-continent, although beyond the usual platitudes it was difficult to discern much in the way of genuinely new ideas.

One old idea that may resurface into popular discourse in future, concerns South Africa – Nigeria trade relations: negotiating a free trade agreement (FTA) between the two African giants.

At the official level broader bilateral relations have been on a downward drift in recent years, a trajectory capped by Nigeria’s opposition to South Africa’s successful backing of Nkosazani Dlamini-Zuma’s candidacy for the African Union Commission Chair position.

Just before the WEF summit, South Africa and Nigerian business met under the auspices of the binational commission. Discussions seem to have been relatively fruitful, to judge from subsequent media reports and corridor discussions at the WEF in Cape Town. For example, the Nigerian government reportedly wants to learn from South Africa’s experience in promoting domestic manufacturing of cars, while the two countries agreed to address a major irritant in commercial relations by regularising visa application processes. There was even some honesty in discussions, if Aliko Dangote’s critique of South Africa’s black economic empowerment laws is anything to go by.

So with bilaterals relations seemingly back on a healthier trajectory, why not cement them by negotiating an FTA? From a South African perspective the logic is compelling. Nigeria is now one of the largest investment destinations for South African companies. Where they go, some degree of exports are bound to follow. With Nigeria’s economic growth trajectory looking good, by contrast with South Africa’s anemic domestic growth, it is likely outward FDI flows from South Africa into Nigeria will intensify. An FTA would solidify the budding investment partnership by cementing South African access to Nigerian markets, placing our companies on a sound competitive footing relative to a broadening array of emerging markets looking to access the African growth story.

What about Nigerian motivations? Currently the Nigerian economy lacks diversification, relying on oil as its major export. Yet there are reasons to be optimistic about future prospects. Finance, for example, is growing in leaps and bounds. Most importantly, under finance Minister Ngozi Nkonjo Oweala, economic reforms across the board are gathering pace. Some of my corridor discussions in Cape Town supported this proposition. Crucially, an FTA with South Africa would buttress and extend the reform process, introducing much needed competition into a domestic political economy fraught with insider relationships.

At the same time the mooted FTA would send a serious signal to the rest of the continent that economic integration is moving beyond the rhetorical, to the meaningful. Moreover, it would pressure other countries to knuckle down and compete with the sub-regional giants.

Those concerned about ‘excessive competition’ that could be unleashed through a strengthened regional integration impulse, such as South African Finance Minister Pravin Gordhan, can take comfort from two factors. First, really sensitive products can be carved out of FTA arrangements. This concerns two categories of goods: those where import-competing interests would be forced to compete through import liberalization; and those which play a substantial role in buttressing state coffers owing to the duties they attract. Clearly these would have to be carefully handled. Second, most exports from the sub-continent leave the sub-continent since they are primarily commodities destined for more sophisticated economies. This means direct intra-African competition over goods markets is sharply limited, beyond a few key regional economies such as South Africa and Nigeria.

So what are we waiting for? Let negotiations commence…!

Q & A with IPS

Q. Why South Africa and Nigeria?

A: They are the two sub-continental powerhouses, economic ‘giants’ if you will. A strong bilateral political axis underpinned by a strong trade and investment relationship would have a powerful demonstration effect across the sub-continent, and challenge other countries to respond. In my view it would also bring substantial economic benefits to both sides in terms of exports, investment, competition enhancement and ultimately productivity. Employment effects would be more difficult to establish a priori, but to the extent that the agreement promoted economic restructuring this would promote the sustainability of each country’s position in the international economic system.

Q: Do you think there is any appetite for this among the politicians, who would have to drive the negotiations?

A: I sense that there may be appetite on the Nigeria side, as a tool to enhance and ‘lock-in’ their domestic economic reforms. Both sides see the political case, since problems in the bilateral relationship are well known. However, my sense is that on the South African side there are reservations, owing to the inward-looking approach gaining ascendancy in official thinking about trade relations in general. That is not to say SA is not favorably disposed, but rather to suggest that to the extent there is political will behind the idea it would be in favor of a limited trade arrangement and not a comprehensive one. I suspect some of those concerns could be echoed on the Nigerian side. Then there is the issue of South Africa taking its customs union partners along. I don’t have a sense of the thinking amongst the BLNS states in this regard, but clearly their interests and concerns would have to be taken into account.

Q: If there were to be a FTA, how would regional groupings fit in?

A: See my comments about SACU above. It would have to be a SACU-Nigeria FTA. ECOWAS is not a customs union, so Nigeria should be free to pursue its own negotiation. Having said that, it may wish to bring its ECOWAS partners into the negotiation process. If so, that could create a broader negotiating dynamic, potentially bringing SADC into the equation. Overall it could lead to a ‘juggernaut’ effect of competitive liberalization incorporating Southern and Western Africa. Managing this would be, to say the least, challenging.

Q: Would this help to further/be a setback for the wider Africa integration agenda?

A: If managed correctly it should further the cause.

Q: Existing FTAs allow exemptions for sensitive products. Might this be needed, and could this be accommodated, in a SA/Nigeria FTA?

A: It would have to be on the table, so yes, the political economy would dictate exceptions/carve-outs.